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High Low Method Question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › High Low Method Question

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • April 19, 2014 at 1:07 pm #165639
    Yazan
    Member
    • Topics: 32
    • Replies: 32
    • ☆☆

    Hi Sir,

    I am using the BPP revision kit for BPP and am confused by the high-low method when there is a highest total output is not the highest total cost . How would i proceed?

    i.e.

    A company, which manufactures a range of products, has decided to introduce a product costing system. As a first step it wishes to analyse the behaviour of its costs.

    The following data is available for the previous four periods

    Total Costs 214,559 239970 243,183 259,541
    Total Output 64,200 79,350 86,170 85,620

    a) Using the high-low method, which ONE of the following formulae will correctly calculate the cost of the variable element per unit?

    (it then goes onto to listing four options)

    —–

    My answer was to do (243183-214559)/(86170-64200). I did this because I was under the assumption that we always use the highest units, not the highest costs, when there is a discrepancy of this sort.

    The actual answer as provided in the book is 259541-214559/85620-642000. They used the highest total cost as the determinant.

    It would be very helpful if you could advise on the matter. Which one should I use?

    Thanks,
    Yazan

    April 19, 2014 at 2:46 pm #165642
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You use the highest and lowest levels of activity – in this case output units.

    It would seem that BPP have done it wrong in this question, but not having the actual question in front of me I cannot be certain what the have done.

  • Author
    Posts
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